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Unemployment
Unemployment is part of the IB syllabus for macroeconomics . It is also part of the AP Macroeconomics syllabus for Economic Basics, Measurement of Economic Performance, and Inflation, Unemployment, and Stabilization Policies Full employment and underemployment Underemployment is when workers who have high skills are employed in low wage jobs that don't fit their skills at all or doesn't require their use of skills that they, themself, had before. An example of this is a doctor who works as a bus driver. A common thing that happens is that foreigners from other countries entering a country that doesn't see their great skills or it isn't recognized by the people. Most of the times the underemployed are often competing for available jobs. Full employment is when all or nearly all people who are able to work and willing to work can work at a certain wage. Also full employment is when all available labor resources are being used in an economically efficient way. Full employment doesn't mean that there is zero unemployment. Sometimes it is defined as cyclical unemployment or 0% unemployment. The remaining unemployment is frictional. Full employment has been used with long-run aggregate supply curve. Full employment is the quantity of labor that is used when the labor market is in equilibrium. Also Full employment can be attainable within an economy but may result in an inflationnary gap. The inflationnary gap would probably result from the workers having more disposable income, which drives the prices upward. Unemployment rate Unemployment means the percentage of the civilian labor force that is unemployed. Unemployment Rate= Number of Unemployed persons Civilian Labor Force Costs of unemployment There are three main costs of unemployment. For the first cost the government has to increase social benefits. Which means that they would have to either raise taxes (which is unlikely because hardly anyone could afford to pay them), create a higher deficit because the government would have to spend money it does not have (which is the most common action the government takes), or cut other programs such as programs to help build infrastructure (which would hurt the economy in the long run.). The second economic cost of unemployment is the aggregate demand decreasing. The consumption would decrease because all of the people who has been laid off or fired will have less money to spend, thus the aggregate demand would decrease. Finally the GDP would go down because there would be a decrease in aggregate demand. The GDP would also decrease because of the waste of resources and because of the deskillment of the previous labor force. Since there are so many unemployed people, there are less people to work. Since there are less people working, there are less resources being used up. So there would be a excess of resources left that will not be used. That is wasteful and the resources could be used more efficiently. Deskilling is what happens when someone has not worked in a while. If a person does not work on a skill that they have, they will either lose it or become less efficient in it. Which is bad because it puts them at a disadvantage to a person who is still in work and is practicing their skills, that means that they are less likely to be hired and more likely to stay unemployed. The final and huge cost of unemployment is the social cost. The social cost of unemployment is the decrease of the unemployed person’s self esteem. For most people their job is a part of their identity. If they lose their job they lose a part of themselves and who they are. What happens when their self esteem goes down is that they become depressed. When they become depressed many bad things happen such as they could start abusing drug and alcohol substances, or even start abusing their spouse, family and friends. A lot of people when they become depressed may commit suicide because they cannot cope with their situation. Types of unemployment • structural Structural Unemployment: A type of unemployment that occurs when changes in the economy eliminate some jobs and create others, but the workers from the lost jobs are unqualified to do the newly created jobs. Example: In the country X, there are ten thousand barrel makers. Something happens to the economy of country X that makes it so the country no longer has any jobs for the barrel makers, so they become unemployed. Whatever happened to the economy of country X that creates unemployment for the barrel makers however, creates jobs for ten thousand computer programmers. While there are still the same number of jobs as there were before, the barrel makers are unqualified for the new jobs, so they are still unemployed. • frictional Frictional Unemployment: A type of unemployment which occurs during the time period of transitioning between jobs. Example: Ryan works at the University of Minnesota library. After graduation, it takes him six months to find a new job. He is no longer unemployed, but had six months of frictional unemployment. • seasonal-Intentional unemployment at a specific point in time. Ex: Susie works at Fashion Bug during the Christmas/New Year's Eve Holiday. Once it is over, she goes back to school and no longer works there. • Cyclical/Demand-Deficient: This type of unemployment occurs when there is not enough aggragate demand in the economy. Cyclical Unemployment gets its name because it enteracts with the buisness cycle. Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages do not fall to meet the equilibrium level, and mass unemployment results. Basically this this type of unemployment means that there are too many unemployed workers and too few jobs needed to be filled. • real wage Measures to deal with unemployment Costs of unemployment: *Transfers increas *Governmet spending increases *Taxes increase *Deflation *De-skilling *GDP decrese Natural Rate of Unemployment NAIRU: Non-Accelerating Inflation Rate of Unemployment is another name for the natural rate of unemployment. The reason it is given this other name is this: Economist Milton Friedman argued that any and all market economies must involve some unemployment (see above). This natural level of unemployment was titled just that. Unexpected inflation might allow unemployment to fall below the natural rate by temporarily depressing real wages, but this effect would dissipate once expectations about inflation were corrected. Only with continuously accelerating inflation could rates of unemployment below the natural rate be maintained. At the natural rate of unemployment, inflation was not continuously accelerating, as it was below this level. Category:Macroeconomics Category:Inflation, Unemployment, and Stabilization Policies (AP) Category:Economic Basics (AP) Category:Measurement of Economic Performance (AP)